Still not clear about the details about why a problem occurred in the first place, but Simon Phipps covers in the article on Computerworld UK, linked above, some of the possible reasons it might have occurred.
But the two highlights, that I will quote, indicate the issue has been resolved, again this information is from Simon Phipps' article at Computerworld UK, I would also like to note the article was published at 19:34 (BST I assume) on October 22, 2012 (ie Monday) and the updates happened late Monday Night/early Tuesday Morning:
Update @ 23:55 - Linn just contacted me to say her account has been mysteriously re-activated and she's busily downloading her books. Hopefully Amazon will have more news for us all soon. Even positive arbitrary actions disclose how much Kindle customers read only with the grace of Amazon, of course...
Update @ 00:30 - Amazon PR just wrote to say: "We would like to clarify our policy on this topic. Account status should not affect any customer's ability to access their library. If any customer has trouble accessing their content, he or she should contact customer service for help. Thank you for your interest in Kindle."
Note the response from Amazon's PR department, about Account status ability should not prevent you from reading your library!
For those not aware Amazon went through a mess with deleting a book from customers' Kindles, because Amazon actually didn't have the rights to sell digital copy of that title or something like that, see Wikipedia article http://en.wikipedia.org/wiki/Amazon.com_controversies#Kindle_content_removal
Important thing to get from that, is Amazon learned it's lesson then, they apologized and offered everyone affected small amount of compensation.
IME Amazon responds to customer complaints, both on individual level and on bigger issues when brought to their attention.
Not saying they are perfect, they still use DRM which I hate, and personally think is pointless, as we all know locks only keep honest people out.